Who’s afraid of the deficit?

On Thurs­day, the best House speaker of mod­ern times re­claimed her gavel, re­plac­ing one of the worst. It has taken the news me­dia a very long time to ap­pre­ci­ate the great­ness of Nancy Pelosi, who saved So­cial Se­cu­rity from pri­va­ti­za­tion, then was in­stru­men­tal in gain­ing health in­sur­ance for 20 mil­lion Amer­i­cans. And the me­dia are still hav­ing a hard time fac­ing up to the phoni­ness of their dar­ling Paul Ryan, who, by the way, left of­fice with a 12 per­cent fa­vor­able rat­ing. But I think the nar­ra­tive is fi­nally, grudg­ingly, catch­ing up with re­al­ity.

There’s ev­ery rea­son to ex­pect that Pelosi will once again be highly ef­fec­tive. But some pro­gres­sive Democrats ob­ject to one of her ini­tial moves – and on the eco­nom­ics, and prob­a­bly the pol­i­tics, the crit­ics are right.

The is­sue in ques­tion is “paygo,” a rule re­quir­ing that in­creases in spend­ing be matched by off­set­ting tax in­creases or cuts else­where.

You can ar­gue that as a prac­ti­cal mat­ter, the rule won’t mat­ter much if at all. On one side, paygo is the law, whether Democrats put it in their in­ter­nal rules or not. On the other side, the law can fairly eas­ily be waived, as hap­pened af­ter the GOP’s huge 2017 tax cut was en­acted.

But adopt­ing the rule was a sig­nal of Demo­cratic pri­or­i­ties – a state­ment that the party is deeply con­cerned about bud­get deficits and will­ing to cramp its other goals to ad­dress that con­cern. Is that a sig­nal the party should re­ally be send­ing?

The eco­nom­ics of crude, me­chan­i­cal rules about bud­get deficits are clear: They’re a re­ally bad idea.

Deficit ob­ses­sion was deeply de­struc­tive in the years that fol­lowed the global fi­nan­cial cri­sis, help­ing con­ser­va­tives push for aus­ter­ity mea­sures that held back eco­nomic re­cov­ery for years. True, we no longer have a de­pressed econ­omy, and aus­ter­ity is a lot less de­struc­tive when the un­em­ploy­ment rate is less than 4 per­cent than it is when un­em­ploy­ment is more than 8 per­cent. But an­other re­ces­sion will come, and a rigid bud­get rule will not be help­ful when it does.

Fur­ther­more, there are things the gov­ern­ment should be spend­ing money on even when jobs are plen­ti­ful – like fix­ing our de­te­ri­o­rat­ing in­fra­struc­ture and help­ing chil­dren get an ed­u­ca­tion, health care and ad­e­quate nu­tri­tion. Such spend­ing has big long-run pay­offs, even in purely mone­tary terms.

Mean­while, the fed­eral gov­ern­ment can bor­row money very cheaply – the in­ter­est rate on in­fla­tion­pro­tected 10-year bonds is only about 1 per­cent. These low bor­row­ing costs, in turn, re­flect what seems to be a per­sis­tent sav­ings glut – that is, the pri­vate sec­tor wants to save more than it’s will­ing to in­vest, even with very low in­ter­est rates.

Given this re­al­ity, why not put some of those ex­cess sav­ings to work in high-re­turn pub­lic in­vest­ments? Should we re­ally refuse to spend money re­pair­ing sewer sys­tems or pro­vid­ing child nu­tri­tion if do­ing so raises the deficit a bit, with only a mi­nor im­pact on fu­ture in­ter­est costs?

The truth is that while vot­ers may claim to care about the deficit, hardly any of them re­ally do. For ex­am­ple, does any­one still be­lieve that the Tea Party up­ris­ing was a protest against deficits? From the be­gin­ning, it was ba­si­cally about race – about the gov­ern­ment spend­ing money to help Those Peo­ple. And that’s true of a lot of what pre­tends to be fis­cal con­ser­vatism.

So am I say­ing that Democrats should com­pletely ig­nore bud­get deficits? No; if and when they’re ready to move on things like some form of Medi­care for All, the sums will be so large that ask­ing how they’ll be paid for will be cru­cial.

But while fis­cal pru­dence is al­ways nec­es­sary, for Democrats to put spend­ing in a strait­jacket – es­pe­cially when Repub­li­cans have shown them­selves com­pletely ir­re­spon­si­ble – looks like a bad move.